Crude Higher On Raised Geopolitical Tensions, Significant Uncertainty

Oil prices rose sharply in response to raised tensions in the Middle East following the weekend’s atrocities. Crude rose over 5% during APAC trading but is now off its intraday highs. There is concern that if hostilities spread to other parts of the region then oil production could be impacted. If it appears that they will be short-lived and contained, then the rise in prices is likely to be reversed. The USD index is 0.2% higher on safe haven flows.

• Brent rose 5.2% to an intraday high of $89 but is now around $87.69/bbl. WTI is now holding just above $86 at $86.06 but earlier it rose 5.4% to a high of $87.24. WTI prompt spreads widened but imply that fundamentals haven’t changed.
• There are reports that Iran was involved in the Hamas attack on Israel and reprisals on Iran could risk crude shipping through the Strait of Hormuz, which the state has previously warned it could close. According to Bloomberg, around 17mn barrels of crude and condensate are shipped through the passage every day. Only recently the US eased sanctions on Iran to allow more oil shipments.
• Later the Fed’s Logan, Barr and Jefferson speak. There is no data due to the Columbus Day holiday. The ECB’s de Guindos and Enria are also scheduled to appear. IMF/World Bank annual meetings take place today and tomorrow.